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Photo [manipulative] of what it could look like, with cooling tanks at Frederiksberg Utility
by Jakob Bjerregaard, Project Assistant - District Energy, Ramboll
SOCIETY'S STAKE IN DISTRICT COOLING
District cooling can often present the best business case to
building owners and tenants. But of equal importance, it can
offer a number of benef1ts to the surrounding community
locally and nationally.
District cooling (DC) is most often a more energy efficient
way of providing cooling than conventional central or single
room air-conditioning, and thus it is a more resource efficient
solution. From an energy system perspective DC like district
heating (DH) can also provide a better background for the
implementation of renewable energy sources, solar and wind
in particular. It does so by offering to even out the demand
profile and enabling a more stable production.
Also the switch from central or single-room cooling solutions
to DC can smoothen the demand curve of electricity. As with
DH this is done through the use of energy storages, but also
the demand profiles are aggregated, which allows for a more
steady production. Moreover, the cooling needs not come
from an electricity dense production, but can make use of
free cooling, such as rivers and lakes, or surplus heat through
absorption chillers. In that case the demand for electricity in
the process is significantly reduced.
So, if DC is desirable, and we agree as well that cooling as a
service is needed, why is it then still so underdeveloped and
JOURNAL NO. 1/2013
isolated in a few places around the globe- even in countries
famous for their DH?
The answers may lie for a large part, with challenges common
with DH services. It requires large up-front long term
investment, a stable policy framework, and collaboration
between va rious stakeholders.
DC is a capital intensive business, just as DH, and thus the
barrier of financing is ever present. The required investment
in a network to supply the chilled water to the end-consumer
is relatively large. For a given amount of energy the DC pipes
are also much bigger than an equivalent pipe for distributing
heat as hot water The capital intensive issue makes DC not the
preferred business for many investors.
The lack of a stable policy framework (or the lack of a policy
framework at all). furthermore increases insecurity and makes
a sound f1nancing diff1cult. The lack of framework makes
interested companies, e.g. an established DH company, abstain
from taking initiatives in establishing DC schemes. Creating
a DC scheme ultimately means laying pipes on private and
public ground, and it wou ld benef1t from a clear set of rules
on how to gain access to laying pipes and wh ich cond itions the
investment is subject to.
www.dbdh.dk
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) SOCIETY'S STAKE IN DISTRICT COOLING
This also leads to the next point of collaboration between
stakeholders, it is often seen to be difficult for different
business and developers to work together and share risks. The
result is often bilateral agreements leading to small schemes
with only one or a few actors involved.
The result is potentially an unregulated market in which a
number of small schemes is scattered throughout a city
This can be a good baseline for connecting the DC "islands"
and establishing a citywide network, but in many cases the
technical specifications of each network system differ, making
an efficient city wide scheme difficult.
Even when citywide DC systems do emerge in an unregulated
environment, the result is a monopoly for fwst movers, which
may be desirable for the fwst mover but not necessarily for the
users and the community
To avoid a situation where the DC market is either characterized
by a number of small islands or a monopoly taking advantage of
the situation, the DC market could learn from other energy
markets such as the electricity market, and separate the
process in different business entities.
This is not naturally bound to happen, as e.g. transmission
capacity only serves as a service and market place. It may
either generate no revenue for the service or take advantage
of controlling the monopolized marketplace with the benef1ts
that follows. These market distortions are also likely to happen
if there is only one producer, or for that matter in a monopsony
with only one consumer.
Besides the monopoly challenges, the history of DH and DC
systems bears evidence that the scale of and return on the
investment make both the funding and the organizational setup
very important when considering a scheme. And the market
driven approach often shows a limitations in the development
and expansion of both DH and DC schemes.
So how do we go about creating a market place for cooling
services that secures a distribution of the benef1ts
between the parties; producers, consumers and facilitators
(distribution)?
The typical delivery of a scheme or system can be divided into
three main areas for boundaries of services:
Production
Distribution
End- user connections
In smaller schemes all three are often incorporated in one
supply and operational company whereas for larger schemes
the production is often separate. The distribution company
then buys heat or chilled water from the production company
to sell on to its customers. The responsibility of the end
user connections often finishes with the individual dwelling
HOTICOOL
boundary, and the interface unit is the responsibility of the
end-user just as an individual gas boiler wou ld be.
If we investigate the lesson learnt from DH in Denmark, it is
based on a number of principles, which has been crucia l for its
success.
Central planning in the late 1970es was the one initiative
that kick-started the further expansion of DH in Denmark.
At that time the market share of DH was app. 30 % of the
heat demand. It highlighted the potential by laying out areas
dedicated for DH only. But at the same time set the boundaries
for DH expansion and where natural gas for individual boilers
was to be provided.
Production and distribution were set up as non-prof1t
organisations publicly or cooperatively owned. The setup
ensured that any prof1ts wou ld be paid back in terms of
improvements to the system or though reduced heating
charges, but it has also prevented accumulation of capital
which made all investments debt f1nanced.
Last but not least all changes and expansions of the DH
schemes had to be evaluated based on socio-, company- and
user economic principles to ensure that the solutions were
good, not only for business, but for the customers and society
as we ll.
The effect of these principles has been instant expansion of
DH with solid economic ground, which proved a success for
society, DH companies and the users. In the case of Denmark,
DH has been vital in decoupling economic growth and C02
emissions and in general the transition to renewable energy
sources and urban air quality.
These advances have not come without a cost. Consumers are
locked into their heat provider. Some schemes have proved
uneconomically despite the preparatory work. Capitals for
future investments have not been accumulated.
The consumer lock-in is a trait of collective solutions, which
cannot be solved, as competing collective solutions would
cannibalize each other and remove the benef1ts. But it is also only
a disadvantage, when the collective solution is not optimized.
Uneconomical schemes have often related to a reliance on a
single fuel, where prices have grown disproportionally, whereas
the lack of equity and venture capital has resulted in lack of
expansion of schemes and, at least in Denmark, in a lack of
investments in e.g. DC.
The consequence of that is not only for users not getting
access to cheap cooling or heating, but also for society failing
to reap the benef1ts of converting to more clean and efficient
form of cooling.
"?ENERGY AND ENVIRONMENT
Therefore separation of production and distribution is needed,
as mentioned earlier. The distribution could be owned by the
stakeholders, to avoid the powers of the monopoly belonging to
a private company. We also need to ensure third party access
for producers to the network - this will ensure competitive
energy prices and minimize the risk of uneconomical schemes.
Capital needs to be accumulated in distribution companies in
order to secure the development of the schemes. But until
capital is accumulated, local authorities should guarantee
loans, as well as highlight the potential of DC in road maps and
the like.
expansion of district heating and cooling, by committing
member states to assess the potential and take initiative
for the execution. These initiatives have to ensure the right
market conditions. If they do, district cooling can become a
very important tool for delivering on national energy efficiency,
C02 emission and renewable energy.
0 For further information please contact:
Ramboll
Att.: Jakob Bjerregaard
Hannesmanns Aile 53
DK-2300 Copenhagen S
Phone: +45 51615677
wwwramboll.com/energy Now, why should authorities get involved
in the project? The thing at stake is
whether the result wi ll be schemes for
the good of the local community, in terms
of cheap, sustainable energy contributing
to the stability of the energy systems
and helping to achieve local climate
ambitions. Or if it is going to be a cash
heaven for the fwst mover capitalizing on
the lack of energy regulation or rather
lack of consumer protection, possibly
with the effect of further destabilizing
the electricity market due t o demand
peaks on electricity driven cooling.
MAKING MODERN LIVING POSSIBLE
The delivery and operating company seen
within DH is frequently referred to as an
Energy Services Company (ESCO]. There
are a number of models that can be
identified which can be used to establish
an ESCO. Each of these models has been
driven by Local Authority leadership,
influenced by specific local priorities, and
constrained by policies governing the
apportionment of risk and public sector
borrowing.
It is here important to point out that
Ramboll is not familiar with any DH
scheme (in the world] that has not had
invo lvement by a local authority at some
leve l in its delivery.
Therefore the recommendation is for
authorities to get involved in the DC
market. Not by subsidizing the core
business but by setting a framework
that allows for financing of the
infrastructures, building a strong market
with third party access and ensures
the socio-economic optimization of
solutions.
The newly adopted European Energy
Efficiency Directive paves the way for
JOURNAL NO. 1 / 2013
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www.dbdh.dk
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